Topic: Monero Economy - page 18. (Read 43688 times)

It is, in a way, except that it's exactly Satoshi's trick that makes these coins possible. Since the network has no access to resources from outside the network, it can only rely on internal resources to reward miners. Which basically comes down to issuing coins out of thin air. No one disputes that this is how PoW coins work. The only issue is what happens "in a long time" when the rewards diminish to near zero or zero.

If you don't like issuing coins out of thin air, then you really can't like Satoshi-style PoW coins. You wouldn't be alone, BTW, there are plenty of critics.

Gold has done just fine for thousands of years. There are only two reasons why nobody spends it:

- The problems it has due to its physical nature
- Government bans

But a lot of people including the biggest banks use it as a store of value, hence the price it has.

Smooth was just telling us how he sees economics as a pseudoscience, and I agreed. So please don't say things like "it is well established that" inflation is good and deflation is bad. It's like a fallacious appeal to authority. Precisely one of the things Satoshi wanted to experiment was going against mainstream economics. If we want Monero to succeed, we shouldn't change every aspect of Bitcoin.


I know. I'm just saying it's unfair to make people pay for services they don't use. The discussion would be easier if instead of saying "inflation will pay for  that" we simply said "savers will pay for that".


Agreed. And I think this is the case and we are in trouble, unless we back off from this idea that inflation is good for a currency that people is not forced to use. For a currency that people is forced to use, it's not good or bad, it simply doesn't matter for its survival because people will have to use it anyway. But it's bad for the people.


I wouldn't say you are punishing spenders, since you are not forcing them to do anything, and you are not stealing anything from them. In the case of an inflationary currency you are punishing the savers by stealing from them. You could say they shouldn't have saved in such a currency to begin with, but where will that leave the price?

There is a common belief that the amount of transactions is far more important for the price than the savers/investors, which is absolutely false. Number of transactions is only an interesting indicator that the currency has a lot of utility, that it's accepted everywhere. Utility drives the price up, spending for no reason does not. One guy above was even suggesting that we punish stale coins, and that we move our coins for the sake of it. That's dogma right there.

If you, like me, want to see the price go "to the moon", what you want is savers/investors. It's a virtuous circle, and we have seen it on Bitcoin: Investors jump in, price goes up, mining becomes more profitable which brings more hashing power, therefore more security, which makes it more interesting for more conservative investors, prices goes up, we hit the news, and so on.

Also nobody answered this: What's wrong with using offchain transactions for small buys? That way nobody is punished, not even spenders.

hbadger, please take the time to read upthread. You are making assumptions left and right:

Nobody says crypto inflation is "free" money. That's the point. All new coins require work, inflation or not.

If it is true that inflation is not an incentive for spending, then we are in trouble because fiat does have incentive to spend, and we won't be able to compete.

It is well established that finite money supplies don't work over the long term.

Why?

- Hoarding + privileged mining = shrinking supply in circulation
- Little to no block reward means tx witholding and competitive fee escalations
- Perpetually increasing value means disincentivized spending
- Perpetually increasing tx fees mean disincentivized spending

What is the takeaway here? You are punishing the spenders. Not a promising strategy in a currency.

In a competitive market prices converge to marginal cost. In the case of transactions, this includes things like the cost of electricity to actually verify the transactions as valid, bandwidth, and the increased risk of orphans if you include more transactions in your block. It does not include the cost of performing proof-of-work. The only way miners who are "paid by transactions" are able get paid for performing proof-of-work is by overcharging by the transactions themselves, and they can only do this if they have some sort of market power. Thus it is impossible for mining to be competitive if proof-of-work is paid by transaction fees. It also results in further destructive incentives, as miners try to scoop up and horde transactions (for example using a sybil attack), since transactions are no longer competitively priced, but no represent a source of profit to be "mined."

There is also the free rider argument. If long-term-holders just hold and don't perform transactions (i.e. generate fees), miners won't do work, and the block chain won't be secure. The holders could do the mining themselves, but again only if they collude. Individually the incentive is for each holder to sit out and let the others holders pay the costs. The higher transactions fees go (to pay for proof of work, remember?), the greater the incentive to just sit on your coins and not pay them. This only reaches an equilibrium if some individual or group acquires all or most of the long-term holdings, so that individual or group can pay the mining costs without being exploited by free riders. Failing that, you have insufficient security, and likely such a coin will never become very successful (this includes bitcoin, although I think its possible now that bitcoin becomes a version of fiat).

So no structural mining reward means either extreme concentration of power, either in mining or holdings or both. One way to look at a structural reward is a consensus among the holders to share costs (since all holdings are being diluted by inflation) instead of relying on individual decisions to incur costs and suffer from a free rider problem.

Pricing remains an issue though, as no one has come up with a good model for how much mining should be performed, and how it should be paid for. "None" is clearly wrong though, in the proof-of-work model. Using proof-of-stake (if that can be made to actually work) or something else is another question.

I agree. I'm not saying "This is true because my teacher said so". I only had one class of economics at school and it sucked, it was all dogma. I'm just using observation and logic. Everyone is free to tell me "your observation/reasoning is wrong because X".


You are going to have to pay them one way or another. I only see two ways: inflation or transaction fees. The former would be paid by everyone (inflation is not free money), the latter only by those who need to transact. I don't know why you believe it's right to make everyone pay for a service they are not using. That sounds a lot like a government. What's wrong with letting people pay for the services they use? Nothing good can come out from letting people (in this case the senders) spend money that isn't theirs. Let's imagine an extreme scenario: A currency with zero fees. People would generate a ton of transactions they don't need at all, just because it's free. It would also attract trolls and spammers, and other scourges. That can't happen if it is their own money they are spending.

Ok, you say it forces consolidation. That doesn't seem intuitive at all. Do you have any evidence for it? All PoW coins seem to favor consolidation. I don't think it has anything to do with the relation between fees and inflation. Can you elaborate on this?

On the ethical side, you need to look at the equilibrium between the cost of electricity and the value paid out to miners.

Let's use CPI, consumer price index as the unit.

If we assume for simplicity that mining power per CPI is flat over time (no new CPU tech), then mining equipment can be bought once and after some time it is the business of converting eletricity to coins.

Therefore it is an equilibrium between the value of electricity and what miners are paid.

In a society where the M1 money supply consists mostly of XMR, spending 1% on miners a year means that of the total money supply, the equivalent to 1% of that money supply is exchanged for electricity, and wasted.

This can be a significant part of the power produced in the world.  Therefore, the ethical solution is not to fix this as a percentage of the total money supply.

There is no logic to having a linear correlation between the value of the money supply and what miners are paid.  Having 100x as many miners does not make the system 100x as secure.  Having 2x the miners and spending 98x on developing mathematical proofs for the code base is probably a much better proposition.

The only sensible action is for miner profits to go down, in percentage of the total money supply, almost to zero.  This is based on the assuption that XMR increases in value.  There is simply no point in having 100k miners to secure the ledger.   That's like chasing insignificant risks when the big elephant in the room is the fact that the code base is written in C++ instead of Haskell.

What did you accidentally do?

Is it a pitfall others could avoid if you tell us? 
[/quote]

Check out the behaviour of "make clean" in the makefile
Before I changed it, it didn't used to prompt you to remove the build directory...

I come at this not from a macroeconomic point of view (I consider virtually all macroeconomics to be junk science) but from a practical one. I want to continue to pay miners without relying on transaction fees, because the latter forces consolidation, and worse, to give miners the market power to charge more than marginal cost. 

If you don't have inflation (or demurrage, which I consider equivalent) how are you going to pay miners?

Inflation is not an incentive to spend unless you are forced into using only that currency, like governments do to their own people.

Do you have plans on forcing everyone to use Monero? Because if you don't, this will fail. I love everything about this coin, except for the inflation. And I talked to many bitcoiners and they independently arrived to the same opinion.

One of the main uses for Bitcoin that a lot of people like, is as a store of value. It rewards saving, like gold, as opposed to what fiat does, which punishes saving and responsible spending.

This also has ethical implications, like supporting or not consumerism and its ecological impact. Why do you want to force people into buying things they don't need? The economy can't grow undefinitely, sometimes it has to shrink for the benefit of the world and all of us. If someone is selling a product that people don't need anymore, what's wrong with him moving into something else? Why not "force" him into building things we need (if anything at all), instead of forcing us into buying them anyway? Inflation goes against the free market in that sense.

Also, if you want the price to go up, there's nothing better than having people use it as a store of value. Being able to use the currency (utility) also drives the price up, though not immediately (but the good news can have a fast effect). Forcing people into spending it won't. And it will certainly not attract new savers.

Anyone else think this coin is undervalued?

What did you accidentally do?

Is it a pitfall others could avoid if you tell us? 

It's not.  But keeping coins moving is.  Any waste of resources in this instance is negligible.  But I am more likely to spend coins if I am consciously aware of them as a resource, as would be required in order to move them.  The good for the economy part is emission which compensates for lost coins.  They will have higher velocity than average.

I don't really see how moving coins to yourself is good for the economy. In fact it seems like a waste of resources, though the benefit of certainly over lost coins might be worth it.

Well, me and someone else personally destroyed 600 by accident, I'm sure there will be more.

Additionally, it's likely that hundreds or thousand of monero were lost due to TFT's block reward bug: http://monerochain.info/charts/reward

If you leave coins idle past the shelf time, you get diluted.  It's an incentive to move coins.  Incentives to move coins are good for the economy.  As I see it, there is no downside to the game.  It's just a question of how much win there is.  (Probably one would cap the maximum emission, so that massive hoarding would not be incentivized.)

I'm not sure, if a miner holds many coins they are inclined to leave as many as possible sitting idle so that their mining rewards in 10 years are higher. Anything like this can be gamed too easily.

Would fixing the rate at 1 Monero per block be too much?

I much prefer the immortal final reward to be something really nice and even, like 1 instead of 0.1 or 0.12.

I feel this might be ok because Monero is quite a fast release coin with 80% mined in the first 4 years. I really think we could justify 1 Monero per block.

I still prefer something like 0.5% - 1%

Someone said that 0.69% is the same as the doubling of the coin supply every 100 years (not including lost coins). I liked that idea.

I think we need to have a simple solution (fixed % or amount) without worrying about lost coins. Over time there will be less and less lost coins and I doubt we'll ever have the same lost coin situation as Bitcoin.

Monero is worth about $1 in it's first month, it took Bitcoin years to get to that point.

One approach not yet considered, which is motivated by the lost coins issue, would be to emit in the following year however many coins have remained unmoved for the past 10 years.  Actually, it would make more sense to make it a full human lifespan, but the emission curve is too aggressive to do that gracefully, and lifespans may change a lot, so whatevs.  If you don't want to get diluted, just be sure to move your coins every 10 years.  Sadly I can't control whether someone else moves their coins, so it's a bit unsatisfactory in that regard.  

Regardless of such minor issues, recycling lost coins as rewards does make a lot of sense.  It would be a deeply compelling idea if the emission curve tapered over 80 years or so.  But even on a shorter frame, if the shelf period is uncorrelated with the demographic cycle, this would also have an adaptive effect, with respect to velocity fluctuations resulting from that cycle -- assuming that newly issued coins have higher than average velocity (which seems certain).

Adjusting emission depending on velocity read directly from the blockchain is such a bad idea that I won't go there again.  But counting idle coins provides a somewhat similar benefit, without all the pitfalls.  It is certainly less dependent on committing to a particular economic theory.

Edit:  I should not have said "recycling".  I was thinking in terms of recycling the days-destroyed, rather than the coins themselves.  "Recycling" per se would only be reasonable if actual lost coins could be identified, but they can't, in principle, so actual recycling attempts would be ill-advised.

Agreed!


Any idea which FreiCoin forums/threads? Would be nice to have a link, that was a bit before I started posting here. If not I'll look around when I get time.